My best guess as to what is occurring today is that retail investors are just getting out. The media got everybody worked up about the S&P downgrade and combined with the recent decline it put mom and pops over the top. They simply don't want to go through another 2008. Never mind that the folks at S&P are about as prescient as yesterday's newspaper or that Treasuries, the object of the downgrade, are screaming higher. I would actually bet that many of these mom and pops investors are fleeing into treasuries, which is what was actually downgraded.
Add to that all the momentum strategies practiced by technicians and quants. Hedge funds tend to reduce risk as well when the markets decline further adding to the negative momentum.
My sense is that the S&P downgrade is the height of the panic and that the liquidations just need to work their way through the system. I believe we will be much higher by the end of the week.